1. As a former GEICO agent, underwriter, and supervisor the point of using credit scoring isn\’t to penalize by putting poor people in the high risk company to make extra money. The poster who wrote that should go back to watching the History Channel Conspiracy marathon. It is to grow profitably in the most profitable segments in the most accurate and cost efficient way possible while ensuring high levels of insured retention. It isn\’t a conspiracy and this isn\’t a commune or kabutz (sp?). It is free enterprise capitalism at it\’s best. Any doubts compare the rate structures for auto in States that allow competition against those in highly regulated, particularly no-fault, states. Competition wins.
2. GEICO underwrites using occupation (as one of many, many variables) in most states because it is a legal discriminator (insurance by it\’s nature is discriminatory)which like other factors has a relevance to future claims likelihood. Like it or not sometimes stereotypes are accurate in life. I\’ll write 10,000 mechanical engineers at a lower rate that 10,000 roofers (because the engineers exhibit a higher level of responsibilty than the roofers as a group) or 10,000 police officers because as a group they are greater risk takers. You may not like it but being right is it\’s own defense.
3. Credit scoring in repeated studies over the last fifteen years has shown a greater correlation to claims filing than any other indicator to date including driving record. Don\’t like it, too bad. Insurance isn\’t about equality, see discriminatory above. Insurance uses legal, proven facts regarding large groups of similar risks to determine which groups are most likely to cost the most money. These groups are charged the most. If there is a problem with that then you should use hard work and education to improve your situation. Everyday homogeneous groups of McDonald\’s employees go to work. Some buy cars and treats and get into debt. Others buckle down, get an education or skill, and make something of their lives. Having come from nothing no one will ever convince me that anyone is stuck with the life they start with. Ok off that soapbox and back to the insurance one.
4. Credit scoring bias – Credit scoring isn\’t based on how much credit you have, possible minor debate on those models that include the number of credit accounts, but how well you pay your bills. Another poster commented on the impact of an emergency car repair or buying Johnny new xmas clothes: Generally these purchases would help your score and would only hurt if you didn\’t make your payments on time and/or used up more than a safe portion of your credit ratio to income. Live in Central LA and pay your bills on time (and don\’t tell me in the land of Captial one et al that everyone in this country isn\’t getting credit card offers)your credit will be ok. Live above your means in Beverly Hills and your credit won\’t be ok.
4. Lastly, yes there are exceptions. But folks, this is 2007, and if you haven\’t learned yet you can\’t manage by exception like in the 1920\’s and be a large company. Progressive started this in insurance and all they really did was take some of the manufacturing logic to the service industry. If you want service by exception you might be better served by some Independent Agents but for the majority who are buying a commodity, auto insurance, a company that can accurately rate 95%+ of the risks presented is going to be good enough. And at the end of day good enough has to be good enough.
In your response regarding the 13 commissioners, I think you missed the biggest point: Insurance Commissioners are typically either elected or appointed. In many cases that doesn\’t mean they know anything insurance other than they know how to raise money, elected, or raise money for someone else, appointed. They might as well be ambassadors or a cabinet level appointee to the white house for all their subject matter accumen.
Unfortunately you are right and whats wrong with our industry. Yes its 2007, and I know no one cares, and its all about the money. Getting away with discrimination does not make it right, it just means when we sell our soul it takes on a life of its own. Insurance companies could make a profit by charging a rate based on real factors, driving record, losses, mileage, cost factors, experience, useage etc. Then we started stasically grouping insureds, occupations for example. This is a true predictor, but in reality unfair and discriminating. The industry got away with it, and now there is no limit or conscious in making a profit. We insure people, and our industry has well protected themselves, but the fact is why not scharge roofers more to ride the bus than an engineer. The reasoning is that it costs more to clean the seats of the bus for a roofer. If a bus driver tried it he would get his clock cleaned, and no one would ride the bus. Insurance only get away with it because they have never sat been held personally accountable.
I seel insuracne and teach insurance classes. My experience has been that people who have access to large amounts of unsecured debt are also adversely inpacted by credit/insurance scores. Case in point; I had a household with two surgeons aquire insurance in my agency and the received a slightly below average score. The same day I insured a employee at a cabinet shop earning $10 and hour with a stay at home spouse and 1 child. He got the best score available. Neither party used their credit irresponsibly but the former had access to large amounts of unsecured debt. So there my be an INVERSE relationship to income and credit scores.
In the end I would prefer to see those who don\’t believe in the use of credit scores to acquire their insurance with companies who don\’t use them. I suspect however, that they like many others consider insurance an expense and make an attempt to keep these costs as low as you can by shopping around and buying the least expensive.
I guess I will continue to subsidize people making poor choices by paying more for health insurers due to smokers, more for credit cards due to identity theives and bankrupcy filers, more for my clothes due to shoplifters ….. and the list goes on.
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1. As a former GEICO agent, underwriter, and supervisor the point of using credit scoring isn\’t to penalize by putting poor people in the high risk company to make extra money. The poster who wrote that should go back to watching the History Channel Conspiracy marathon. It is to grow profitably in the most profitable segments in the most accurate and cost efficient way possible while ensuring high levels of insured retention. It isn\’t a conspiracy and this isn\’t a commune or kabutz (sp?). It is free enterprise capitalism at it\’s best. Any doubts compare the rate structures for auto in States that allow competition against those in highly regulated, particularly no-fault, states. Competition wins.
2. GEICO underwrites using occupation (as one of many, many variables) in most states because it is a legal discriminator (insurance by it\’s nature is discriminatory)which like other factors has a relevance to future claims likelihood. Like it or not sometimes stereotypes are accurate in life. I\’ll write 10,000 mechanical engineers at a lower rate that 10,000 roofers (because the engineers exhibit a higher level of responsibilty than the roofers as a group) or 10,000 police officers because as a group they are greater risk takers. You may not like it but being right is it\’s own defense.
3. Credit scoring in repeated studies over the last fifteen years has shown a greater correlation to claims filing than any other indicator to date including driving record. Don\’t like it, too bad. Insurance isn\’t about equality, see discriminatory above. Insurance uses legal, proven facts regarding large groups of similar risks to determine which groups are most likely to cost the most money. These groups are charged the most. If there is a problem with that then you should use hard work and education to improve your situation. Everyday homogeneous groups of McDonald\’s employees go to work. Some buy cars and treats and get into debt. Others buckle down, get an education or skill, and make something of their lives. Having come from nothing no one will ever convince me that anyone is stuck with the life they start with. Ok off that soapbox and back to the insurance one.
4. Credit scoring bias – Credit scoring isn\’t based on how much credit you have, possible minor debate on those models that include the number of credit accounts, but how well you pay your bills. Another poster commented on the impact of an emergency car repair or buying Johnny new xmas clothes: Generally these purchases would help your score and would only hurt if you didn\’t make your payments on time and/or used up more than a safe portion of your credit ratio to income. Live in Central LA and pay your bills on time (and don\’t tell me in the land of Captial one et al that everyone in this country isn\’t getting credit card offers)your credit will be ok. Live above your means in Beverly Hills and your credit won\’t be ok.
4. Lastly, yes there are exceptions. But folks, this is 2007, and if you haven\’t learned yet you can\’t manage by exception like in the 1920\’s and be a large company. Progressive started this in insurance and all they really did was take some of the manufacturing logic to the service industry. If you want service by exception you might be better served by some Independent Agents but for the majority who are buying a commodity, auto insurance, a company that can accurately rate 95%+ of the risks presented is going to be good enough. And at the end of day good enough has to be good enough.
Mjolnir,
In your response regarding the 13 commissioners, I think you missed the biggest point: Insurance Commissioners are typically either elected or appointed. In many cases that doesn\’t mean they know anything insurance other than they know how to raise money, elected, or raise money for someone else, appointed. They might as well be ambassadors or a cabinet level appointee to the white house for all their subject matter accumen.
Unfortunately you are right and whats wrong with our industry. Yes its 2007, and I know no one cares, and its all about the money. Getting away with discrimination does not make it right, it just means when we sell our soul it takes on a life of its own. Insurance companies could make a profit by charging a rate based on real factors, driving record, losses, mileage, cost factors, experience, useage etc. Then we started stasically grouping insureds, occupations for example. This is a true predictor, but in reality unfair and discriminating. The industry got away with it, and now there is no limit or conscious in making a profit. We insure people, and our industry has well protected themselves, but the fact is why not scharge roofers more to ride the bus than an engineer. The reasoning is that it costs more to clean the seats of the bus for a roofer. If a bus driver tried it he would get his clock cleaned, and no one would ride the bus. Insurance only get away with it because they have never sat been held personally accountable.
I seel insuracne and teach insurance classes. My experience has been that people who have access to large amounts of unsecured debt are also adversely inpacted by credit/insurance scores. Case in point; I had a household with two surgeons aquire insurance in my agency and the received a slightly below average score. The same day I insured a employee at a cabinet shop earning $10 and hour with a stay at home spouse and 1 child. He got the best score available. Neither party used their credit irresponsibly but the former had access to large amounts of unsecured debt. So there my be an INVERSE relationship to income and credit scores.
In the end I would prefer to see those who don\’t believe in the use of credit scores to acquire their insurance with companies who don\’t use them. I suspect however, that they like many others consider insurance an expense and make an attempt to keep these costs as low as you can by shopping around and buying the least expensive.
I guess I will continue to subsidize people making poor choices by paying more for health insurers due to smokers, more for credit cards due to identity theives and bankrupcy filers, more for my clothes due to shoplifters ….. and the list goes on.
No wonder I\’m so tired all the time.